1. TRADE REGIMES OF THE TWENTY-FIRST CENTURY
Since 1945, both regional and multilateral regimes have governed international commerce and investment. These regimes helped create five decades of prosperity - one of the best periods in modern economic history. Because of their success, both regimes are likely to coexist in governing the international economic system of the Twenty-First Century.
At the core of the international trading system are the General Agreement on Trade and Tariffs (GATT) and the new General Agreement on Trade in Services (GATS). The GATT and the GATS, together with their new umbrella organization, the World Trade Organization (WTO), establish basic rules of the road for trade and investment. These rules are observed by about 120 nations; many of them are market-oriented industrial or semi-industrial countries, but some have different economic systems, and some are very poor.
Alongside the WTO are regional preferential trading arrangements (PTAs). The three most important are the European Union (EU), the North American Free Trade Agreement (NAFTA), and the Asia Pacific Economic Cooperation forum (APEC). Other important PTAs are the Association of Southeast Asian Nations (ASEAN) and Mercado Comun del Sur (MERCOSUR). Regional groups seek deeper trade and investment liberalization than achieved by the WTO.
Overarching political considerations shaped the evolution of international economic regimes during the Cold War. Russia, China and their allies were outside the system. National security objectives acted as "circuit breakers" on trade and investment disputes between the United States, Japan, and Europe. During this era, the substantial liberalization achieved under the auspices of the GATT and the PTAs principally reached the industrial nations of Europe, North America, and Asia - all market-oriented economies with high levels of income and similar social structures. Most developing nations in Asia and Latin America, not to mention the economies in transition, were on the fringes of the system or totally outside its reach.
II. NEW CHALLENGES
The deferred business of the international economic system is at hand. Deeper integration now exists both within once separatist economies - such as those states in Latin America, Asia, and Africa - and as between former adversaries - such as the People's Republic of China and the states of the former Soviet Union. The first stop for nearly all the economies in transition (EITs) will be the World Trade Organization. The WTO will expose the EITs to systematic rules on merchandise and services trade, on the protection of intellectual property, and on the treatment of foreign investors. But many EITs want more than WTO membership. They want membership in one of the big three regional groups, the EU, NAFTA, or APEC.
The European Union faces the question over the next five years of accession by Central European nations. Beyond that, there are the claims of Ukraine and Russia, not of full membershiP, but of close economic association with the European Union. Similarly the NAFTA members must decide whether to enlarge to the South by admitting the small countries of the Caribbean and Central America, the successful medium-sized Latin nations, such as Chile, Columbia, and Argentina, and whether to forge a relationship with MERCOSUR and Brazil. As for APEC, several countries would like to join: Vietnam, Peru, India, and Russia, among others.
The number of EITs desiring membership in the regional arrangements poses two questions: how ready are the PTAs to accept new members and how ready are new members to join the PTAs?
III. OBSTACLES TO PTA ENLARGEMENT
Obstacles to economic integration exist quite apart from the special problems of EITs. Indeed, the march toward free trade and investment often has been interrupted since the Second World War. One way to view the process is this: an economic trend superimposed on a political cycle. …